CASE 10:
Railroad Budget Blowout
Firm Style Interview Round
BCG 2
Case Question
Our client is an Eastern U.S. railroad that is required to implement a new technology
mandated by the government. The new technology involves installing signal readers at
various points along the tracks to communicate train locations and improve safety
measures over the next 12 months. They have exceeded their budget on the first 3
installments and have asked us to help them solve the problem.
Clarifying information (provide only if corresponding questions are asked)
Q: What is the total budget for the project?
A: The total budget is $100M
Q: Do we know how far over budget they are?
A: It varies by installment but they have been over by an average of 15%
Q: Is there a reason why costs have increased?
A: The client is unsure and has asked us to help them figure out the cause of increases.
Q: How many more installments do they have?
A: 10 left
Railroad Budget Blowout
Clarifying information (provide only if corresponding questions are asked)
Q: What is the process to install the new technology?
A: For each location, the installation team travels to the site daily, works 8AM-5PM, Monday-Friday. They are each
assigned a task once they arrive and have the tools to get started.
Q. Has the same team done each of the installations?
A. It’s a core team of installers for each region who travel to various sites. They are the only ones with this type of
experience in the regional areas.
Railroad Budget Blowout
Framework / Structure
This interviewer is looking for (i) identification of whether this is a company-specific or industry-wide
problem and (ii) breadth and creativity of thinking in identifying the cost buckets for the projects and
potential opportunities to reduce costs, which can be done by reducing the labor or increasing
efficiency. Below is an example of a strong MECE framework.
Reasons for Cost Increases
• Labor
• Wages
• Taking longer than expected (Overtime)
• Union Involvement
• Higher minimum wage than budgeted
• Process
• Requiring more people to complete task
• Composition of workers - skilled vs. unskilled
• Materials
• Cost of inputs
• Transportation of materials
• Development / Infrastructure costs
• Inventory Control
External:
• Competitors experiencing the same thing
• Weather interference – causing longer project times
• Supplier Issues
• Technology Failures
Railroad Budget Blowout
Interviewer Tips
• Amongst several other issues / opportunities, the candidate should identify the main factors to be
considered as the labor and materials for the project.
• If they do not identify these buckets, push them to brainstorm.
• Once asked for specific costs/budget-to-actual info, provide Exhibit 1
• After review, candidate should identify that labor is the main source of increased costs
• Encourage the candidate to brainstorm ways to investigate labor costs
• After some discussion, mention that a study was done to observe workers in the field and provide
Exhibit 2
• Candidate should look for opportunities to reduce non-value add activities
• If needed, prompt candidate to consider which activities add value and which do not
• Candidate should use this data to calculate savings opportunity per worker
• Reference “Calculation” slide for additional information
• If needed, prompt candidate to quantify the savings by reducing non-value add activities
• The rest of the case should focus on identifying specific actions to increase efficiency and reduce
costs
• Candidate should make assumptions and do calculations to determine amount of cost
savings that can be realized by implementing solutions
Railroad Budget Blowout
Exhibit 1
Actual
Budget
$0 $20 $40 $60 $80 $100 $120 $140
Materials Labor Misc
Railroad Budget Blowout
Exhibit 2
Observed Daily Activity Average Time (per worker)
Arrival and daily set up 20 mins
Gather materials 20 mins
Team meeting 30 mins
Signal installation 5 hours
Breaks (smoking, bathroom) 40 mins
Lunch 1 hour
Quitting early* 40 mins
Waiting for new task 30 mins
*Sometimes workers don’t start a new task if its nearly the end of the day
Railroad Budget Blowout
Candidate should immediately drive to insights
• There are many non-value add activities that can be eliminated
• By reducing non-value add activities, we can increase productivity by 33%
Interviewer Guidance
• Company policy includes 2x10 minute breaks per shift & 1 hour of unpaid lunch
• Team meetings are mandatory
• Arrival & gathering materials can be reduced by 75%
• Non-value add activities to eliminate – push candidate to reduce these categories by amounts below
• Quitting Early (40 mins)
• Half of breaks (20 mins)
• Waiting for new tasks (30 mins)
• Reduce Arrival & Gathering Materials (30 mins)
• Total Non-value add time to eliminate is 2 hours
• Assume all non-salary workers make the same hourly wage & that salaried workers are not causing the increase
Calculations
• Total non-value add time per worker: 2 hours (120 mins) per day
• Total non-value add time per worker (%): 25% of the day
Railroad Budget Blowout
Brainstorm Solutions
Candidate should naturally make suggestions to improve areas they identify as
needing improvement – interviewer may need to prompt the candidate to
brainstorm solutions. Some possible solutions include:
• Operational Improvements
• Work site management & organization to improve setup time & gathering
material
• Streamline task communication to reduce early quit times
• Training
• Supervisor training to allocate work correctly to minimize wait time
• Policy training and reinforcement
Railroad Budget Blowout
Recommendation
The candidate’s recommendation should include a discussion of: (i) a clear explanation for the
increased costs, (ii) the opportunities for increasing efficiency in the field and the savings that can be
realized, and (iii) a return to the original framework and the specific recommendations for achieving
the opportunities listed.
“Go Recommendation”
• Weak:
• The client should try to get more efficient labor to reduce costs. They should be more strict
about lunch breaks and working hours to help not exceed their labor budget. They should
also try to get a discount on the supplies.
• Strong:
• The client should conduct training and implement new operational strategies to reduce non-
value add time and increase productivity to get the project budget back on track. By
reducing non-value add activities such as excessive breaks and quitting early, they can realize
25% reduction in labor costs. Additionally, they can streamline task assignments and
inventory control methods to improve efficiency. Some risks could be downtime during
training and maintain employee morale while managing pushback. Next steps would be
schedule implementation based on priority and ease of implementation.
